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On 16 November 2016 the Sejm (lower chamber of the Parliament) adopted a bill to amend the VAT Act and certain other statutory laws, calling for numerous changes in the VAT Act and the Criminal Fiscal Code, among other laws.

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Anti-corruption

Anti-corruption

February 9, 2016

Focus on the US

An active FCPA docket anticipated

When compared to prior years, 2015 was relatively quiet for Foreign Corrupt Practices Act (FCPA) enforcement actions in the US. Although the total number of enforcement actions was slightly higher than the previous year, there was an absence of the very large monetary settlements that garnered enormous attention in the recent past. This record, combined with continued criticism that their enforcement actions in the past failed to hold individuals accountable for violations of federal law, including the FCPA, may be the reasons for two significant changes in the government’s approach to enforcement. This raises the question as to whether the coming year will be much less quiet than the previous year.

In a September 2015 DOJ Memorandum titled, “Individual Accountability for Corporate Wrongdoing”, US Deputy Attorney General Sally Yates hit the reset button on policies that govern the investigation and possible prosecution of corporate misconduct. The most significant portion of the memorandum for legal counsel representing business organizations was the following: “[I]n order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct…” Applying this policy to FCPA enforcement investigations would require the company to disclose information it had regarding any employees, business partners or anyone else that had a role in the bribery violation to get the “cooperation credit.” This “cooperation credit” has in the past been a key mitigating factor in the DOJ’s charging decisions and subsequent punishment for corporate wrongdoing. Whether intended or not, the Yates Memorandum makes the in-house counsel’s job much harder. In simple terms, in-house counsel and their outside counsel will have to carefully consider the legal and ethical issues that present themselves when it appears not everyone in the conference room agrees with what course to take to mitigate the legal risks associated with bribery allegations.

The second noteworthy FCPA development was a public acknowledgement by the DOJ last October that it would use a more proactive approach to its investigations. This approach stands in stark contrast to prior years when it relied heavily on corporate self-disclosure to generate investigative leads. The change, according to DOJ spokesperson Peter Carr, was designed to focus on “bigger, higher impact cases." The different approach, coupled with a tripling of the agents responsible for FCPA investigations, suggests that the Department will use high-profile actions, including prosecutions of culpable individuals, to address what it believes to be an opportunistic environment for anti-bribery investigations and prosecutions. Based on similar increases in investigative agents in the past (i.e., relating to health care fraud), it is likely that 2016 will see a significant increase in the volume, size and magnitude of FCPA investigations and possible prosecutions.

What remains unclear is the collateral or secondary repercussions of these changes. While it is clear that US-based individuals have greater exposure after these developments, it is less clear whether the countries where the conduct took place will also step in following the mandated disclosure under the Yates Memorandum and initiate their own prosecutions. The policy will certainly make it easier for them to prosecute their citizens after the company discloses their conduct. History suggests they will do so as there were instances in 2015 when countries used disclosures and settlements made in the US, as well as formal and informal agreements to collaborate with that country’s investigative agencies, to pursue their own enforcement actions. It is uncertain where this strategy will be used in 2016; the only way to know for certain is to put the question to enforcement personnel where the secondary action might be brought. In the meantime, the US government’s recent course changes certainly suggest an active anti-bribery docket in 2016.

Focus on the UK

Serious Fraud Office agrees to first Deferred Prosecution Agreement and more are likely

Since the UK Bribery Act (UKBA) took effect in mid-2011, we have been waiting for the first prosecution for the “failure to prevent bribery offence—the UKBA’s initiative to make covered businesses responsible for bribery committed by agents and intermediaries (and not necessarily affiliates) anywhere in the world for the benefit of the covered business. Since February 2014, UK enforcement agencies have had the power to agree to so-called deferred prosecution agreements (DPAs) with corporations who commit a range of offences, including offences under the UKBA and money laundering legislation. Following a court hearing in November 2015, the Serious Fraud Office (SFO) confirmed the approval of the first DPA. The DPA relates to the conduct of an affiliate of Standard Bank plc (now ICBC Standard Bank plc) in connection with a fundraising for the Tanzanian government. Two senior executives of the sister company appointed an agent, with the promise of paying it one percent of the amount raised. Two of the three shareholders of the agent were related to the government, and the transaction moved swiftly after the agent’s appointment. Standard Bank was ultimately alerted and made reports to the SFO and the UK agency then responsible for processing reports of money laundering suspicions. The SFO and the relevant judge agreed there was no prospect of Standard Bank claiming it had adequate procedures (which would have been a defence), and that it had, therefore, breached the UKBA. The SFO and the judge agreed on a DPA rather than an immediate prosecution, so provided Standard Bank meets the conditions of the DPA, the prosecution, currently stalled, will be dropped in three years’ time.

The SFO said that the case had proved where the “high bar” for co-operation could be. The SFO had previously indicated that for it to consider a DPA as an appropriate alternative, there would need to be a high degree of willingness to cooperate and that this should prove to be the case in fact. The SFO advised that any company considering this route should take note that, although “adequate procedures” were not discussed in this particular case, the important thing is to assess the situation as it arises and take appropriate action. For example, regardless of what any procedures might say, if a red flag seems obvious, it should be treated as such. The judge’s comments on how Standard Bank acted once it became aware of the problem were also of key importance. The SFO has suggested the bank’s conduct was a prime reason for the SFO deciding a DPA was appropriate, and stressed it would use DPAs only when a narrow set of specific factors suggested it would be the best route. But we expect at least one more to follow soon.

While we still await the first prosecution or DPA that analyzes whether procedures were “adequate” for the purposes of the defence to a “failure to prevent” an offence, this case is the first illustration of how DPAs are likely to operate in the future. It also shows that the SFO expects to be alerted sooner rather than later, so the timing of liaising with enforcement agencies will be essential.

In other legislative developments in 2015, the government confirmed it would not be extending the “failure to prevent” offence to other financial crimes but introduced statutory protection for those who report suspicions of money laundering in good faith.

Focus on Canada

Continued anti-corruption crackdown

In 2015, Canada saw a crackdown on anti-corruption as enforcement authorities laid charges and investigated a number of cases under the Corruption of Foreign Public Officials Act (CFPOA).

For example, in January 2015, RCMP officers raided the Toronto office of MagIndustries Corp., a public company listed on the TSX that is controlled by a Chinese company and has subsidiaries in the Republic of Congo, where it is developing a CA$1.5 billion potash mine. The allegations reported (none of which have been proven) include improper payments to Congolese officials. There is wide speculation that the RCMP could lay charges in 2016.

In February 2015, the RCMP charged SNC-Lavalin Group Inc. and affiliated entities (SNC) with one count of corruption under the CFPOA (as well as fraud under the Criminal Code). The corruption charge stems from SNC’s business dealings in Libya. It is alleged that over a period of 10 years, commencing in 2001, SNC, through agents, gave, or offered to give, approximately CA$48 million to Libyan officials, including the son of former Libyan dictator Muammar Gaddafi, for the purpose of securing benefits. The RCMP investigation led to convictions in Switzerland of former SNC executives for corruption and money laundering related to SNC’s activities in Libya. In a related development, SNC announced in December 2015 that it had reached an administrative agreement with Public Works and Government Services Canada, allowing it to avoid a federal bidding suspension (which otherwise would have applied under the federal government’s Integrity Regime).

Looking ahead, it is reasonable to assume there will be more enforcement activity under the CFPOA in 2016. Enforcement authorities have demonstrated in recent cases that they are willing to bring charges of international corruption against individual executives of companies (either located in Canada or abroad), in addition to the companies themselves. They are expected to do so with ever increasing vigor, particularly if they achieve some measure of success in any of the ongoing cases.

Domestic corruption was also the focus of attention in 2015, and this is likely to continue in 2016. November 2015 saw the publication of the final report of the Québec Commission of Inquiry on the Award and Management of Public Contracts in the Construction Industry (better known as the “Charbonneau Commission”). The report detailed extensive corruption, bribery and other improper schemes in public contracting for construction services in the province and made 60 recommendations on how to clean up the problem. The Government of Québec has insisted that it is keen to implement the recommendations of the report and there is likely to be significant activity on this front in 2016.

One of the recurring themes of the Charbonneau Commission inquiry was that the problems observed in Québec were also present in other provinces. Accordingly, as the Government of Québec deals with its serious construction industry corruption problems, it is expected that other provinces will closely monitor the situation and may decide to follow some of the steps taken by Québec.

Whistleblower protections were also a key theme that acquired fresh prominence in 2015. The Charbonneau Commission report made a number of recommendations touching upon improvements to whistleblower protections but perhaps the most profound change in this regard was the announcement by the Ontario Securities Commission (OSC) that it would be introducing a whistleblower bounty program, the first time in Canada that significant whistleblower bounties have been proposed by a regulatory authority. The new policy—which is expected to come into force in the Spring of 2016—demonstrates the importance the OSC attaches to encouraging whistleblowers to come forward with information about violations of securities law, and it will be interesting to see whether information received under the new policy will lead to more enforcement and whether other regulatory authorities will follow with their own whistleblower bounty programs.

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